City outlook: Melbourne to take Sydney's crown in the falling house price stakes

Melbourne, which has long compared itself to Sydney, is likely to take a dubious distinction from its northern counterpart this year - that of the worst city for housing price declines.

While the two largest cities both continued to decline in December, Sydney clung on to the title, with a 1.8 per cent monthly drop in prices compared with Melbourne's 1.5 per cent loss.

But the Victorian capital was slower into the upswing than Sydney and also slower into the decline, after credit curbs limited investors and brought an end to a six-year boom in dwelling values in the country's southeastern corner.

ANZ economists expect Melbourne prices overall to decline 7 per cent this calendar year, just worse than Sydney's 6 per cent. The Agency

Will it take the crown? Parts of it already have. Over the year to December, Melbourne's inner eastern suburbs were the worst-performing region of the country, chalking up a 13.4 per cent decline in housing values.

And ANZ economists expect Melbourne prices overall to decline 7 per cent this calendar year, just worse than Sydney's 6 per cent.

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"Sydney was ahead of Melbourne in terms of house price declines," economist Jack Chambers said. "In that sense, it's going to stay ahead of it in terms of a steadying in prices."

"We're going through [a campaign] to gain some early interest while the developer works out what he wants to do with it," Mr Castran said.

"At this point in time any party would be working off what is a standard rate per square metre or what is going on in the area. The equation is a couple of million dollars on the house lot and a couple of million on the build."

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Mr Castran said local interest was already strong. But Melbourne's inner areas may be the hardest hit this year.

"House values in Melbourne are set for a steeper correction; they are forecast to fall by 6 per cent in 2019 on the back of declines in Inner Melbourne areas, compared with a 0.1 per cent fall in 2018," a housing outlook report published by CoreLogic and Moody's Analytics Australia on Monday said.

"With lending conditions likely to remain tight in 2019, the downturn in home values in Greater Melbourne is expected to intensify before rising modestly in 2020," CoreLogic and Moody's said.

"The largest declines are forecast in Melbourne-Inner East and Inner South, where home values are projected to fall by more than 10 per cent."

The fall in apartment values would also accelerate this year compared with last year, they said.

"Unit values in Greater Melbourne are expected to remain sombre in 2019, with a decline forecast for most areas," they said.

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"Growth of unit values is then poised to recover after 2020, with units in Melbourne Inner and Inner East leading. However, growth of unit values in Melbourne-South East, Melbourne-West, and Melbourne-North West is expected to continue declining."

Dark outlook? The owner of this development site in Melbourne's Kew, is drawing up plans, but the market will weaken, analysts say. RT Edgar